As United States legislators pound out the details of energy restructuring on a national level, school leaders are finding themselves back in the classroom trying to figure out how this initiative will benefitor possibly hurttheir districts.
According to the Comprehensive Electricity Competition Plan now before Congress (S1047 and HR1828, respectively), consumers would be free to choose their electricity supplier, much like we’ve been able to choose our long-distance carriers. Enacting this policy and creating a more competitive market will lead to increased efficiency, its proponents say, which will benefit not only the economy, but also the environment.
Before deregulation, state laws allowed utilities to hold monopolies with a right and responsibility to power consumers in their areas or regions. While the benefit of monopoly utilities is reliable service, the plan states, the downside is less efficient energy generation because suppliers essentially are guaranteed that their operating costs are covered.
Deregulation would open up the market, and utilities would be required to allow use of their transmission and distribution wires to all qualified sellers. The nuts and bolts of deregulation ultimately would happen at the state level; however, federal officials need to address it, too, because wires know no state bounds and electricity markets naturally will become more regionalized. Only federal action can address the needs of regional markets adequately, the plan states.
The primary benefits hoped to be realized: lower energy bills. However, buyers will need to be careful, said an official with the Tennessee Valley Authority. The initiative might not benefit all districts.
Wayne Gildroy, assistant general counsel for legislation with the TVA, said there may be a flip-flop of benefits between high-rate areas, such as California and the Northeast, and low-rate areas, such as the Southeast and Pacific Northwest. Schools currently paying high rates might find considerable savings once monopolies are lifted and they can purchase power from lower-cost suppliers. On the other hand, Gildroy believes there is a possibility for investor-owned suppliers in low-rate areas to demand higher prices once the market opens up and they can sell their power elsewhere, thus affecting those local school users.
According to an economist with the Department of Energy (DOE), however, the downside of deregulation isn’t necessarily a negative after allprovided that school officials are prepared. Deregulation might not be an issue you’ve faced before. In order to make the right decisions, you’ll need to spend time researching your options. If you don’t pay attention, the price of volatility could affect you, the economist said.
The bill currently before Congress will have little to do with the specifics of deregulation on the state level; instead, it attempts to ensure that national supplies remain reliable. Individual states are taking a more in-depth look at deregulation, and with each state comes a different approach to opening up the energy market. Gildroy believes that some low-cost states might decide not to deregulate at all.
Different approaches won’t be the only puzzle pieces to sort out. “Once you remove the monopoly supplier, there has to be incentive to build the right generation,” Gildroy said. Removing a monopoly will result in a tidal movement of distributors entering and exiting the marketplace. Many new players won’t own the generation facilities themselves, Gildroy said; instead, they’ll simply be power marketers. Districts that buy into fly-by-night providers might find themselves with spiked energy bills and cold classrooms.
Gildroy recommends that you find out where the energy a supplier is trying to sell you is being generated, then consider its transportation to your district over transmission lines. “Take a look at what overall amount of generation looks like in the region, and get a feel if there are transmission and distribution restraints that might affect delivery of power from outside the region,” he advised. “Research how long the supplier has been in business.”
On a broader scale, the key for schools isn’t just finding the right supplier that is offering the right pricethere’s also a bigger issue. With the market opening up, school officials will have to do a little studying of their own. Will your district have to implement any technology to make this possible? Will a provider be able to meet your demands? What happens in the event of a power loss?
California is among the 25 or so states that already has deregulated its energy market. It’s also one of the states that would most benefit from a reduction in prices through open-market selling. Ron Denault, assistant superintendent of Atwater School District in central California, said that while savings are imminent, electricity usage is the smallest part of his district’s bill. He estimates that deregulation will result in a 1 to 5 percent savings, which is rather minor when you consider that a chunk of the district’s bill is a Competition Transmission Charge (CTC) of approximately 25 percent passed on by its supplier.
The CTC helps the state pay for stranded costs of older utility companies, such as nuclear power plants, and is assessed to smaller, privately owned distributors. The larger public utilities with major accounts are not subject to the CTC.
If the district wanted to find a new energy supplier, Denault said, it would cost about $500 to retrofit a new meteror two, depending on the size of the schoolon each property. This meter is necessary because it is an on-demand situation, he says. Bids for electricity are given at an hourly rate.
“The small savings are not enough to go through the retrofitting of the meters to take advantage of it,” Denault said. The real competition game will begin once the CTC vanishes, he says: “When that goes away, it will become more competitive because we won’t pay that extra percentage in the bill.”
California is in an interesting position: The supply is high, but the number of distributors is not. Therefore, consumers are looking outside of state boundaries anyway for power. With rolling brownouts, the supply tends to peak in the beginning of the summer. And with interdependence in the power grid, a brownout in one Western state might affect others nearby. (According to the DOE economist, deregulation won’t necessarily make the grid more or less reliable. There will still be outages from time to time.)
Denault’s district, along with several others in northern California, has joined an initiative to lower its energy costs by buying natural gas. The district is part of the School Project for Utility Rate Reduction (SPURR), whereby it uses natural gas to the extent that it can. In the past 12 months, SPURR-member districts have seen a total of $218,000 in savings; Atwater School District accounted for $1,000 of that. While it’s not necessarily that significant, it is seen as a savings to the eight-school district.
The picture on the ultimate affect of energy deregulation is still murky, Denault said. SPURR offers a bit of advice to those looking at changing suppliers as a result of restructuring: Sit tight with your current supplier until the picture gets clearer.
Denault has followed the energy initiative closely and offers the following advice before choosing an outside supplier: “Look at who will service the lines if the lines go down. Also, who do you call when there is an outage?” Energy might be purchased from outside companies, but it still is delivered through the local power lines. That’s an area that gets muddied in deregulation.
The economist at the Department of Energy paints a more positive picture of energy restructuring as a whole. The bottom line is more attractive, she said. Once deregulation is implemented, the DOE predicts a total savings in the United States to the tune of $20 billion a year, or about 10 percent.
The economist (who declined to have her name used) agrees that schools in high-rate areas will see significant savings, but she doesn’t necessarily agree with the notion that schools in low-rate areas will face higher rates. While she did not have specific rate structures for schools, a DOE analysis shows that for the greater part of the country, prices will go down. The only area where rates might rise is the Pacific Northwest, because suppliers there are limited in terms of developing additional hydropower, so they will have to bring in more forms of generation.
In terms of technology, the economist believes schools will not need additional technology to take advantage of potential savings from energy restructuring. Power still will come in over the same wires, it’s just that energy will be purchased from a different supplier. The local company still will deliver power to individual schools, but the energy coming over the local lines could be generated elsewherepossibly even another region of the country.
The experts agree that savings will be there to those who do their homeworkso it might be back to the classroom for officials in search of bottom-line energy benefits.
U.S. Department of Energy
Tennessee Valley Authority
Atwater School District